Rebate Management refers to the management of discount claims that are based on volumes of purchases over time.
To some companies, that rebate is treated as a bonus. But to others, rebates form a significant proportion of their revenue and for these companies accurate management is absolutely essential.
Rebates were “invented” as a way of driving sales growth without simply reducing the contract price. By agreeing retrospective financial incentives based on actual sales, both the supplier and the distributor are working together to drive market share and growth. Rebate agreements are becoming increasingly more creative and many are finding that “standard” business systems don’t facilitate this creativity.
How to manage your rebates better
The management and processing of rebates is challenging, with significant financial risks if something goes wrong due to loss of data or human error.
Many rebate arrangements lack support in financial accounting systems, such as targeted incentives and multistrand rebates. Keeping a track of rebates when purchasing is decentralised or where the trading agreement is made by a buying group creates further challenges.
So what can purchasers do about these rebate challenges in order to maintain an effective management process?
You could work your rebates out in spreadsheets, relying on individuals to collate and input data manually. This rebate management process works in theory but it's easy to see how it could be subject to errors or omissions.
'It's easy to see how spreadsheets could be subject to errors or omissions'
Alternatively, some companies rely on their suppliers to perform all the relevant rebate calculations for them, without ensuring it all checks out.
Neither rebate management method is optimal, as they both create a wealth of issues if things go wrong — slow cashflow, loss of income, disagreements with suppliers, incorrect margin calculations — the list goes on!
In order to manage rebates successfully, and reap the financial rewards they can bring to your organisation, there are certain practices you must take towards implementing an efficient and effective rebate management process.
5 steps for an effective rebate management process
- Ensure mutual understanding with suppliers — prior negotiation of viable rebate terms with suppliers reduces any risk of disagreement between purchasers and suppliers with regards to the contract. Both parties should have access to the relevant data and calculations and be clear on rebate terms in advance.
- Maintain compliance — a transparent audit trail will make sure that all relevant information is recorded, allowing easier monitoring and auditing to take place. A rebate management system should provide a compliant process to eliminate the time and cost involved in providing evidence for rebate claims.
- Reduce uncertainty — ambiguously worded agreements, unclear procedures and over-reliance on individuals all provide room for error which could create cost and risk in your business. Systemise the content of agreements to remove any ambiguity.
- Keep track of earnings and incentives — the ability to accurately calculate and track rebate earnings and forecasts is fundamental to reliable rebate accruals and maximising the incentives built into rebate agreements.
- Streamline processes — automating the collection of information about rebate deals and purchases and the reporting of rebate claims minimises the need for manual intervention, reduces error and improves cash flow.
A dedicated rebate management system will make it easy to track complex supplier agreements and ensure that all of the rebates negotiated in the terms of your agreement are captured and claimed.
For more information about managing rebates, download our guide “How to manage complex rebate contracts effectively.”